AS-IS: Ecommerce, Internet, Software & Technology Law and Contracts

Imagine working in an industry with no intellectual property protection at all.  Unlike the book, music, and high tech industries, you couldn't use the law to shut down an infringer who was ripping off your products.

How would you stay in business?

Ask the fashion design business.  That's what BusinessWeek did.  According to BW, garment designs are not copyrightable (but "counterfeit garments ... right down to the label ... are illegal").

BW found these strategies:

1. Protect what you can under existing intellectual property law - at the edge of IP, so to speak.  Diane Von Furstenberg has begun protecting her copyrights to fabric patterns (as opposed to the entire garment itself), as art.  Shoe designer Stuart Weitzman patented a shoe's buckle and ornamentation.  Both Von Furstenberg and Weizman have sued to enforce their intellectual property rights.  (Similarly, blue jeans companies have for years registered and sued to protect their trademarks in the ornamental stitching on the back pockets of their jeans.  For example, see Levi Strauss's U.S. trademark registration number 1,139,254.)

2. Use time to market to your advantage.  According to BusinessWeek, Designer Halston now makes its fashions available quickly at Net-a-Porter.com, to speed ahead of the inevitable copycats. Many industries have used this strategy successfully over the years, even the U.S. media industries in the late 19th century.  (See Stephen Breyer, "The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs," 84 Harvard Law Review 281 (1970).

3. Use "natural intellectual property" -- materials or processes that others simply can't copy, or that would be too expensive to knock-off cheaply.  For example, Weitzman is making shoe heels out of steel and titanium, which are too costly for low-price imitators.  When imitators try to use cheaper wooden materials, "the heels will snap."

4. Change the law.  The designers are supporting a proposed Design Piracy Prohibition Act.  But Congress is deliberative, and that path is slow and risky.  

Posted by Harry at 01:03 PM | Permalink

Some factoids about patents:

• Typical cost to obtain a U.S. patent: $5,000 to $25,000. 
• Cost to invalidate a patent: Legal fees average $4.5 million in patent disputes where more than $25 million is at risk.
• Cost of obtaining a patent versus invalidating one: You do the math.
• Number of inventions under active patent in the U.S.: 1.6 million
• Number of patents owned by International Business Machines Corporation (IBM), the 14 year recordholder of the largest number of patents awarded to a single company: 3,651.
• Percentage of software patents to total patents awarded in the early 1980's: 2%
• Percentage of software patents to total patents awarded today: 15%

(I am not a registered patent attorney, and do not prosecute or litigate patents.  I've worked on many patent licenses and agreements over the years, though.)

(Source: "Businesses Battle Over Patent Laws," The Wall Street Journal, June 9-10, 2007.)

Posted by Harry at 09:07 AM | Permalink

How large is the intangible economy in the U.S.?

• U.S. businesses invest about $1 trillion in intellectual property and other intangible assets, according to a study by the Federal Reserve Board.  That's as much as they invest in equipment and other tangible investments.
• Intangible assets, including intellectual property, constitute nearly 1/3 of the value of all U.S. stocks, or 45% of U.S. Gross Domestic Product (GDP).

(Source: "Businesses Battle Over Patent Laws," The Wall Street Journal, June 9-10, 2007.)

Posted by Harry at 09:55 AM | Permalink

Business Week ran an interesting cover story about the tensions between quality methodologies such as Six Sigma, and innovation and creativity.

In sum, "while process excellence demands precision, consistency, and repetition, innovation calls for variation, failure and serendipity."  According to Management Professor Vijay Govindarajan, "the more you hardwire a company on total quality management, [the more] it is going to hurt breakthrough innovation.... [t]he mindset that is needed, the capabilities that are needed, the metrics that are needed, the whole culture that is needed for discontinuous innovation, are fundamentally different." 

The article mentions one Wharton/HBS study that found Six Sigma leads to incremental innovation rather than "blue sky" work.  After a quality program, patents issued based primarily on prior work (incremental improvements) made up a "dramatically larger" share of the subject companies' portfolios than patents not based on prior work.

It also mentions that several companies, including 3M and Young & Rubicam, have pulled back from their focus on quality methodologies.

What to do?  In the same issue, consultant Jeneanne Rae suggests creating an ambidexterous company, which would reserve process improvement approaches to cases where they are truly needed to cut costs and improve profitability.  She advocates maintaining a separate organization with its own incentives and talent to produce radical innovation.

Source: "At 3M, a Struggle between Efficiency and Creativity," by Brian Hindo, BusinessWeek, June 11, 2007.

Posted by Harry at 04:28 PM | Permalink